CoBank Reports Rising Output Compressing Agricultural Margin in Latest Quarterly Economic OutlookFri, 12 Oct 2018 12:33:33 CDT
Strong growth in both the U.S. and global economies will support increased demand in domestic and export markets through the end of the year. However, U.S. competitiveness is currently constrained by trade uncertainties and the elevated value of the U.S. dollar, further placing pressure on the agricultural economy as output in most industries rises.
The latest Quarterly Rural Economic Review from CoBank’s Knowledge Exchange Division indicates that any significant farm price improvements over last year’s prices will be limited, particularly with record U.S. yields for many of the major crop commodities adding to available supply levels. Meanwhile, the animal protein and dairy sectors continue to benefit from strong domestic demand and the promise of better access to Mexico and Canada, but will need more export market growth to absorb their current pace of output and expansion.
“Agricultural markets are being squeezed as prices remain weak,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange Division. “While recently negotiated trade deals show some upside for agriculture, global demand for output from the U.S. agriculture sector is being outpaced by current U.S. production.”
CoBank quarterly economic reviews provide updates and market outlooks covering several topics and industries, including: Global and U.S. Economic Environment; U.S. Agricultural Markets; Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Other Crops; Specialty Crops; and Rural Infrastructure Industries.
Key Factors and Findings
The CoBank report reveals that the escalating trade war with China is the leading risk for U.S. agriculture and that retaliatory actions taken by China and other trading partners have raised concerns of long lasting effects on agricultural supply chains. However, U.S. Department of Agriculture assistance to farmers and ranchers suffering hardship may have a modest impact on farm financial conditions.
Other key findings include:
- Sustained growth in emerging markets will support increasing demand for higher value products such as animal protein, dairy and specialty crops.
- With the trade environment in flux, the U.S. economy remains on strong footing with tax reform and increased government spending providing significant fiscal stimulus.
- In specific commodities, 2019 could see record yields for U.S. corn, soybeans and cotton, which is boosting supplies and limiting price improvement. For wheat, concerns about production shortfalls in the EU and FSU regions have pushed prices higher.
- The animal protein sector has benefited from low commodity prices and excess supply, but trade concerns continue to weigh on beef, poultry and pork markets. However, domestic consumer demand remains stout for animal protein, although pork is experiencing the biggest jolt caused by trade disputes and oversupply.
- Although the dairy markets have been weak, they continue to show modest signs of improvement through the third quarter of 2018, though producer distress remains, forcing some to exit the business.
- The Federal Communications Commission announced the results of the CAF II auction in August, which awarded $1.488 billion in funding over the next 10 years to expand rural broadband access in unserved areas across 45 states.
The full quarterly U.S. rural economic review, “Rising Output Compressing Agricultural Margins,” is available at cobank.com.
Source - CoBank
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